Optimal Weighting of Assets using a Multi-objective Evolutionary Algorithm

Abstract

Abstract— The problem of portfolio optimization is a well-known standard problem in financial world. It has received a lot of attention among many researchers. Choosing an optimal weighting of assets is a critical issue for which the decision maker takes several aspects into consideration. In this paper we consider a multi-objective portfolio assets selection problem where the total profit of is maximized while total risk to be minimized simultaneously. Three evolutionary algorithms i.e. Pareto Envelope-based Algorithm(PESA), Evolutionary Algorithm 2(SPEA2), Nondominated Sorting Genetic Algorithm II( NSGA II) for solving the bi-objective portfolio optimization problem has been applied. Performance comparison carried out in this paper by performing different numerical experiments. These experiments are performed using real-world data. The results show that NSGA-II outperforms other two for the considered test cases.